I frequently speak at investment conferences around the world, and get questions ranging from my outlook for a particular market to highly sophisticated investment concepts. One seemingly simple question asked by a young lady years ago at a conference in Canada which I attended with the founder of Templeton Investments, the late Sir John Templeton, was particularly timeless. She asked: “I’ve just inherited some money from my grandfather. When is the best time for me to invest it?” Sir John was at the podium, and after a brief pause, gave an equally simple answer: “Young lady, the best time to invest is when you have money.” Judging by the laughs, the crowd and I appreciated his response, but I was intrigued about what he meant on a deeper level, so I did some research.

After conducting some historical market studies, I found two important emerging stock market trends: Historically, bull markets have gone up more, in percentage terms, than bear markets have gone down, and bull markets have lasted longer than bear markets. So, if you “dollar cost average,” meaning that you systematically invest the same amount each month or each quarter over a number of years, you would have found that over the long term you were in a bull market more than you are in a bear market.1 And, while past performance is not indicative of future results, historical studies show that, in percentage terms, the bull markets have grown more than the bear markets have declined. In addition, if you have the discipline to continue adding funds during those bear market cycles, that same amount of money would’ve bought you more stocks.

The Importance of a Long-Term View

Investing during a bear market is easier said than done, and I readily admit it’s psychologically a very difficult thing to do. It requires you to look beyond the immediate bad news and toward a potential future recovery. If all your friends and neighbors are giving up on their stock market investments, it’s very easy to be swayed to do the same. In the realm of behavioral economics this is called “herding.”

If the newspapers are reporting how dire the market is and how it will get worse, you can also become subject to what we call the “whipsaw” effect – buying and selling at the wrong times. This is what happened when many sold in a panic at the bottom of the market during the US subprime crisis in late 2008 and early 2009. Then, after the market moved up by over 50%, many decided that they were missing the boat and had to get into the market, buying at the market top! If you are engaging in this type of behavior, you are almost certain to lose money. Without a long-term view you just aren’t likely to be able to have the discipline to continue investing in a bear market and wait for the potential upturn.

Diversification

So if you’ve got money to invest, and are taking a long-term view and thus not hung up on timing the market, how and where do you invest it? Another simple answer: diversify. We’ve all heard about people who made fortunes by investing in one company, but that’s not common. It reminds me of the saying, “If you want to keep all your eggs in one basket, you had better watch that basket carefully!” Most of us don’t have the capability or time to constantly monitor companies, and even professional investors realize that if they are not actually controlling the company in which they invest, some unknown or unexpected event can wipe them out. While diversification doesn’t guarantee a profit or protect against loss, it can potentially help mitigate some volatility.

I think it’s important to be diversified not only across different companies, but across different industries and, most importantly, across different countries. One reason why professionally managed strategies are so popular globally is because they enable investors to be well-diversified and have a variety of stocks that they probably couldn’t properly research and invest in themselves. Unfortunately, many investors have portfolios that invest in only one country… their own. I see this as a big mistake because they are missing out on potential opportunities all over the globe, which is the job of my team and I to uncover.

Our research showed that in the 25 years we studied from 1988 – 2012, and of the 72 stock markets in the world we examined, there wasn’t a single market that was the best performing for two consecutive years.2 And only one market was the best performing in four of those 25 years; Turkey. Only two markets were the best performing for two years; Russia and Argentina.

Turkey (4 years: 2012, 1999, 1997 and 1989)

Russia (2 years: 2001 & 1996)

Argentina (2 years: 2010 & 1991))

Of the remaining 69 countries, only 16 countries had one year as being the best performing as shown in the table below. The rest of the 53 countries had not even one year of being the best performing. It’s interesting to note that China and the US are not on the list. This reminds me of another truism of successful investing; being different. If you invest where everyone else feels comfortable, you may not be investing in the right place. In investing, we believe sometimes being unpopular can be the key to success, and the right time to invest can be any time at all.

Market

No. of years market was top performer

Turkey

4

Russia

2

Argentina

2

Brazil

1

Colombia

1

Croatia

1

Egypt

1

Greece

1

Indonesia

1

Israel

1

Jordan

1

Kenya

1

Mauritius

1

Pakistan

1

Poland

1

South Korea

1

Sri Lanka

1

Switzerland

1

Trinidad and Tobago

1

Tunisia

1

1. Dollar-cost averaging does not guarantee a profit or eliminate risk, and it won’t protect investors from loss if they sell shares when the market is declining or at a low point. Before adopting this strategy, investors should consider their ability to continue investing through periods of low price levels or changing economic conditions.

2. Source: MSCI Indexes. All MSCI data is provided “as is.” MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed or produced by MSCI. Past performance is not indicative of future results. Indexes are unmanaged. One cannot directly invest in an index.

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